South Korea targets "kimchi premium" arbitrage? Working professionals withdrawing money from overseas ATMs thousands of times for "travel expenses" may violate the Foreign Exchange Transaction Act

The Seoul Customs Service in South Korea today, on 7/7, uncovered illegal foreign exchange transactions amounting to 1.7 trillion Korean won. Surprisingly, the 33 Korean individuals involved were charged with arbitrage due to the "kimchi premium" on exchanges, dating back to cryptocurrency trading activities in 2017.

According to a report by Yonhap News Agency, during a three-month investigation by the Seoul Customs Service under the Customs Law, 33 individuals were found to have violated the Foreign Exchange Transactions Act. Among them, 14 were referred to the prosecution, 15 were fined, and the remaining 4 are still under investigation.

The arbitrage methods used by the individuals varied, including underground remittances, exporting large amounts as "tuition fees," and withdrawing "travel expenses" over ten thousand times.

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Case A: Underground Remittance

An underground remittance group has been continuously buying Bitcoin without a premium from overseas exchanges using funds from overseas remittance users from 2018 to early this year, and selling it at a high price difference on domestic exchanges, converting it to fiat currency and returning it to users.

It is estimated to have made a profit of 5 billion South Korean won, approximately 125 million New Taiwan Dollars. The leader of the group and three members have been handed over to the prosecution by the Seoul Customs.

Case B: Large Amount of "Tuition Fees" Exported

A student studying abroad set up multiple bank accounts overseas and has been making 851 remittances from South Korea since 2018 for a continuous period of 1 year and 6 months, buying Bitcoin without a premium from international exchanges through overseas bank accounts and selling it on domestic exchanges to earn the price difference.

The total transaction amount during this period was 40 billion South Korean won, with a profit of 20 billion South Korean won, approximately 500 million New Taiwan Dollars, and was fined 160 million South Korean won.

The profit amount in Case B seems somewhat strange, as the kimchi premium should not be as high as double.

Case C: Withdrawing Travel Expenses from ATM Thousands of Times

An office worker went abroad 29 times with friends from 2017 to 2018, withdrew local currency from foreign ATMs with a cash card over 12,198 times, totaling 32 billion South Korean won, and earned 1.5 billion South Korean won, approximately 37.5 million New Taiwan Dollars from it, and was fined 130 million South Korean won.

A Seoul Customs official explained:

There is no problem with withdrawing travel expenses from foreign ATMs, but frequent commercial transactions evade the regular foreign exchange mechanism and should be fined.

The head of the investigation department stated:

Under the pretext of underground remittance, travel expenses, tuition fees, or buying cryptocurrency through foreign ATMs will result in imprisonment or fines, so caution is advised.

The Seoul Customs also emphasized that a special task force is being organized to strengthen inspection capabilities to focus on cracking down on illegal foreign exchange transactions conducted through cryptocurrency.

According to the analysis platform CryptoQuant, the kimchi premium disappeared after June 27, even falling below the international exchange prices, and cryptocurrency is more prevalent in South Korea than in Taiwan. If the authorities continue to investigate deeply, it may not only affect 33 people.